Monday, December 08, 2008

State and local transportation issues, part 2

The second-to-last segment on financing priorities and options was moderated by Bill King. It also turned into the feistiest session, with some back-and-forth on the practicality of density and rail (including the Texas T-bone high-speed plan), and how important predictability is on adjacent land use around transit stops.

As far as the gas tax, Texas is a net donor to the federal govt, only getting back 78 cents on the dollar, and Houston is a net donor to Texas, providing 25% of the funds but only getting 15% back. Sounds like there will be a push to get more back on both of those.

Some of the financing options discussed: tolls, sales tax, gas tax (including inflation indexing it, the most popular option), local options (county/city voting for local increases in sales and/or gas taxes), capturing property value-add (i.e. tax the value added to property that directly benefits from the road or transit improvement), and attracting private capital (with public-private toll road agreements). A good argument was made that we don't have to limit our options: the state could allow all these "options in the toolbox" for local cities/counties/agencies to use. The need is big enough to tap all of them.

Public tax-free infrastructure financing is much cheaper than private money RoI requirements (12% IRR target), but Metro is evidently pioneering a hybrid approach that shifts risk the private contractor but still uses cheap public tax-free financing. No details were given.

Bill King pitched his no-fares idea for Metro, noting it only costs 15-20% of the budget for a 50+% estimated ridership increase. Opposition included violating the principle of "user pays" and the problem of homeless/indigent riders camping out on the buses. The key metric seems to me to be which option generates the most passenger-miles per dollar spent? It certainly wouldn't be hard to try it for a couple months and see how it performs.

One concern with private-public toll road partnership was that the private money might make too much profit, upsetting citizens and politicians. My solution: require the private money to be Texas government institutional funds, like city and state pension funds and university endowments. Still negotiate the best contract possible for the public, but if it turns out to be more profitable than expected, at least the benefit still flows to the citizens and taxpayers of Texas. No harm, no foul.

The last session was on delivering projects. State vs. local? Public vs. private? Again, talk about maximizing the tools available and learning from best practices around the world. Someone also noted that, with the recession, we'll have a cheap build window for the next couple of years if we can take advantage of it.

An interesting stat that came up: over a 40-year life, a road needs four times its cost in maintenance (does that seem really high to anyone else?). This is why toll roads are such a good option, because the provide the revenue stream not just for construction, but also for maintenance - as opposed to other financing methods that may only contribute enough to build the road, creating a maintenance shortfall down the, um, road.

Humorous quote of the day: "If you take all the stupid people out of the legislature, then you don't have a representative democracy." Both funny and sad at the same time.

That about covers my notes. If you were there and have your own observations, please pass them along in the comments.

8 Comments:

I don't see why that would make tolls a better option than the gas tax. Gas tax provides money for maintenance too - the more people drive, the more gas is used. In fact it is more equitable, since heavy vehicles that tend to use more gas also put more wear on the road, whereas tolls charge all vehicles equally as long as they have the same number of wheels.

Which do you think is causing more wear... a Ford Escort or a Ford Excursion?

>>Good point, although the gas tax still needs to be indexed for inflation, and it still faces a problem of decline because of hybrids, plug-ins, and the rise in CAFE standards to 35 mpg.

I agree that this is a long term problem, but over the next 10 years or so it seems like raising and indexing the gas tax to inflation should work. People aren't going to junk their F-150's overnight. I would be impressed if 10% of the US is on plug-ins by 2020. Assuming that plug-ins do take off, we can start taxing electricity to make up for any shortfalls in the gas tax.

Also wanted to pass along this article in which 20 experts ranging from representatives from Reason to the Environmental Defense Fund weigh in about how to write the next transportation bill.

Tolls are just fine provided they're conducted by a public agency that uses the revenue for maintenance and additional road construction. This country is loaded with insanely cheap toll roads (i.e., pay 75 cents every 25 miles) built by multitudinous state and local governments over the past century.

The problem comes when you try to privatize, because (i) people get greedy (although this happens in the public sector too) and (ii) the debt service on the bonds becomes enormous, because no private toll road consortium is rated as highly as HCTRA or Harris County or the State of Texas or even Pennsylvania and Ohio, for that matter.

The truth is, if TXDOT just issued bonds and collected its own tolls we'd probably already be tooling up and down IH-69 instead of waiting at lights and T-boning cross traffic on US-59. They used to collect tolls on I-30; that's why it's called the DFW Turnpike. This isn't new ground.

The Toll Road was complete private venture. TxDOT had no role in the project other then insuring the project met their standards.

The Turnpike as it was called was built by a private entity. When the debt was paid off it was handed off to TxDOT to maintain. This was the original concept behind Beltway 8 also, but Harris County formed HCTRA instead. TxDOT until just a few years ago could not operate toll roads. It wasn't legal for them to do so.

Private models do work well and there is nothing wrong with a profit being made on the project. Private models still have to heed to market forces. If the toll road cost to much to drive, then people won't drive it.

Regarding the cost of road maintenance vs. capital costs...Any details to back this up? Does this refer to existing roads? How about location: roads in the are north more susceptible to potholes due to freezing?

The Houston Freeways book mentions the enormous thickness of the Katy Freeway concrete to stand up to heavy traffic. I would hope this would reduce the amount of maintenance to the road bed.

About Me

Social Systems Architect and entrepreneur with a genuine love of my hometown. I cover a wide range of topics in this blog - including transportation, transit, economic development, quality-of-life, city identity, and development and land-use regulations - and have published numerous Houston Chronicle op-eds on these topics. I'm a Founding Senior Fellow with the Center for Opportunity Urbanism and co-authored the original study with noted urbanist Joel Kotkin and others, creating a city philosophy around upward social mobility for all citizens as an alternative to the popular smart growth, new urbanism, and creative class movements. I am a native Houstonian, 6th-generation Texan, attended Rice University for my BSEE and MBA, and a former McKinsey consultant and adjunct faculty member with Leadership Houston. I am currently the founder of Coached Schooling, pioneering a transformational new approach for a more effective and engaging 21st-century K-12 education combining the best elements of eLearning, home and traditional schooling. CONTACT EMAIL: tgattis (at) pdq.net - send me an email if you would like to receive these posts via email, or see the Google Groups signup box below.